For Journalists — What Is Chained-CPI?

Dear journalists: Every retired person will tell you that prices on things they buy are rising faster than their cost-of-living-adjustments. So they are falling behind. Meanwhile everyone describes the “chained-CPI” cost-of-living-adjustment as a cut when applied to Social Security. In the old days, reporters would call that a “clue.”

Proponents of the chained CPI assume that it is a more accurate measure of inflation, including for the elderly and for low- and moderate-income people, because it better captures opportunities that people may have to respond to price increases by substituting to goods whose prices are rising more slowing. But the elderly and low-income people have more limited consumption baskets than higher-income people and don’t necessarily have the ability to substitute.

Please read the rest of the CEPR explanation.

Chained-CPI measures the cost of inflation by looking at what people might substitute when they can’t afford something anymore, instead of looking at the rising costs of that they were buying. This literally means that Social Security will be cut when old people substitute cat food for regular food.

Chained-CPI might be a more accurate measure of inflation for some people in some situations. But it is not a one-size-fits-all solution.

Retired people need a cost-of-living metric that measures what they have to buy, not one that forces them to start eating catfood, and then cuts based on that.

About Dave Johnson

Dave has more than 20 years of technology industry experience. His earlier career included technical positions, including video game design at Atari and Imagic. He was a pioneer in design and development of productivity and educational applications of personal computers. More recently he helped co-found a company developing desktop systems to validate carbon trading in the US.